The e-NACH authentication system is estimated to save 95% of the bank's transaction cost

Digital lenders may see their expenses rise as the National Payments Corporation of India (NPCI) said that an Aadhaar-based digital payments solution, e-NACH, will be suspended, starting Monday (November 26).

This may reportedly have an impact on digital lenders, especially smaller fintech startups.

eMudhra, a digital identity and transaction management company, had launched its Aadhaar eSign-based National Automated Clearing House (NACH) gateway in 2017, for large and small enterprises to collect recurring payments from customers digitally.

Under eMudhra’s digital signature system, a customer can authenticate a payment process with a one-time password (OTP). However since the Supreme Court curbed the use of Aadhaar-based eKYC by private companies, this product may result in contempt of court if continued, ET reported.

“Digital lending industry seems to be moving in the reverse gear. First, it was the eKYC issue, then liquidity issue and now eNACH is getting blocked. Time to re-imagine business models considering consumer demand for credit is strong,” PayU India managing director Jitendra Gupta tweeted, following the NPCI order.

The e-NACH authentication system is estimated to save banks about 95% of their transaction-related costs.

“I completely understand and appreciate the concerns of fintechs and banks, since any other alternative may not have the same scale and also raise the cost for mandate substantially. The ecosystem in consultation with the government and the UIDAI need to identify the appropriate solution, till then eSign on eNACH will be suspended,” NPCI CEO Dilip Asbe told ET.

He added that the agency had to take the stand to be compliant with the Supreme Court’s judgement, which disallows private companies from asking for Aaadhaar authentication for eKYC from users.